After the market closed, Level 3 Communications (NYSE:LVLT, news, filings) announced plans to offer $175M in convertible senior notes due 2016. The financing is expected to be completed by the end of September, and includes the option for another $26.25M to cover over-allotments. It has been 9 months since Level 3 last accessed the credit markets, so I suppose they were due. What will they be doing with this new funding? It’s tempting to see this as Level 3 preparing to enter the M&A frenzy that has been growing all year, however in this case I tend to doubt it.
According to the PR, it is for the usual ‘general corporate purposes’, including working capital, capex, and the potential refinancing of the $5.25% converts that come due in 15 months. I suspect that the money is mostly aimed at that last bit, and that they are raising it now rather than later because it’s available. They will probably redeem those bonds over the winter, and in the meantime they will have extra flexibility on the balance sheet for whatever might come up.
I believe that the kind of M&A Level 3 would have in mind would be larger than this, but that to get there they need to get themselves back in a position of strength with solidly growing core revenues. This move is just balance sheet maintenance.
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!
Categories: Financials · Internet Backbones
Join Our LinkedIn Group
Rob,
With all the moves over the last couple years, where does Level 3 sit with debt? I knew it was around $6B at one point…any clue what it is now? How this guy keeps finding money is pretty amazing.
The debt load is still over $6B, and it will likely stay there. Level 3’s plan is (has been) to grow into the debt load, such that it becomes a reasonable size relative to their revenues and cash flow. That’s why a return to organic growth is so crucial for them, and why they might consider inorganic growth opportunities when others might not.
Ohhh, the old grow into the debt trick… Has anyone ever done this
I think Level 3 strode into uncharted territory about 10 years ago, so nothing new there. 🙂
Talks about Wall Street criminals stealing shares! With interest and conversion rates still missing, as well as Walter’s floor price telegraphing the bottom, they have some damn nerve!
That doesn’t even take into account the obvious “potential” for MSFT to take this over once and for all!
I would have thought the “shorting” would have come after terms and pricing were announced.
How many shares will be up for grabs tied to this convert?
How many will that represent above the 49MM shares that won’t be converted in 2011?
Will this indenture include the option for (3) to pay in “cash” or “shares” to holders who may convert like the 5.25 percent 2011’s?
Actually happens all the time. Re: Waste(any of these companies), Cable(time warner cable most recently), Utilities(pick your power plant), VZ debt load is large cap telco is all but gone and few of them have much topline growth. Even in this sector you have companies buying back stock who were on their deathbed just a few years ago.